Ailing Lakeside doctors group rescued by Heritage of Northridge

Acquisition of the Burbank firm at risk of bankruptcy swells the number of patients served by Heritage to more than 600,000.

A major physicians group in the San Fernando Valley, struggling with the rising cost of medical care, has joined another Southern California healthcare network that will now serve more than 600,000 patients.

Burbank-based Lakeside HealthCare Inc., a medical group providing care for 200,000 patients through more than 1,800 staff and contract physicians, was acquired this month by Heritage Provider Network Inc. of Northridge.

The financial terms were not disclosed, but the deal provided a needed infusion of cash to Lakeside, which was struggling with an unforeseen rise in medical costs, executives said.

Without the rescue, Lakeside would have gone out of business through bankruptcy proceedings, said Keith Richman, a Lakeside senior executive and former state legislator.

The deal saved the jobs of 700 physicians, nurses, technicians, case managers, billing clerks, receptionists and other clerical and administrative staff, and should give patients seamless access to their physicians, he said.

"Patients will continue to see their same doctors," Richman said. "Continuity of care will be maintained. Our expectation is to bring in all the expertise Heritage has in care management programs, including home health. And we expect, as an affiliate of Heritage Provider Network, to bring higher-quality care to our patients and to maintain affordability."

Lakeside will now do business as the Lakeside Medical Organization, one of several medical groups operating under the Heritage umbrella.

Heritage, a privately held managed healthcare network, was founded by emergency physician Richard Merkin 30 years ago. It manages the insurance contracts for more than 15 affiliated physician groups from Kern to Orange counties. The affiliation with Lakeside brings the number of patients under the Heritage umbrella to more than 600,000.

Lakeside's financial trouble began this year when the medical expenses of its patients exceeded its revenue.

Lakeside bore much of the risk for its patients' medical expenses because of the way it was paid by insurers including Anthem Blue Cross, Blue Shield and PacifiCare.

As a so-called capitated medical group, Lakeside operated like a mini-health maintenance organization, caring for patients in exchange for set monthly, per-member fees from insurers.

Those payments will now be collected by Heritage, which also will carry the risk.

"These things go in cycles," said Jonathan Gluck, a senior executive at Heritage. "When the economy is good, groups do well. When the economy goes down . . . certain groups don't do as well."

Heritage plans to maintain Lakeside's existing hospital affiliations, including with Providence St. Joseph Medical Center in Burbank, Gluck said. But care for some complex cases, such as transplants and certain types of cancer, may shift from Ronald Reagan UCLA Medical Center to USC University Hospital, Richman said.

The affiliation will bring Lakeside patients some new programs, he said.

"They are going to see better care management and better coordination of care," Richman said. "Heritage has programs for intensive home healthcare and monitoring at home. I'm very excited about the programs Heritage has in place. The programs are far advanced of what we had in Lakeside."

The insurance companies that shifted their contracts for member care from Lakeside to Heritage have submitted a required transition plan for approval by the state Department of Managed Health Care, department spokeswoman Lynne Randolph said.

She said the department was reviewing those plans to ensure that no treatment or continuing care would be disrupted.

One of those insurers, Anthem Blue Cross, has long-standing relationships and many members with both organizations and anticipates no problems, Anthem spokeswoman Peggy Hinz said.

The transition "should be seamless to our members," Hinz said. "We expect that members will be able to maintain their relationships with their current primary care physicians, who will also transition under the acquirer. At this time, there are also no changes to specialists or the hospitals used. We enjoy strong working relationships with all parties involved and believe this development further strengthens the Anthem Blue Cross medical network."